Starbucks' hugely popular rewards program held $1.8bn in customer cash as of April 2. If Starbucks was a bank, that would make it bigger than 90 percent of institutions covered by the US FDIC by deposit size.
Contrary to banks, which must maintain cash reserves to prepare for potential mass withdrawals, the coffeehouse chain only needs to stock up on coffee and snacks.
Could Starbucks be a hidden FinTech?
The Starbucks app boasts an impressive 31 million active users.
Customers can add funds to their accounts using Starbucks gift cards, or by connecting Apple Pay or payment cards to the app.
Each purchase made through the app earns users loyalty points (known as Stars), redeemable for benefits like free refills, beverages, or sandwiches.
A clever aspect of this strategy is that customers paying with funds deposited on the Starbucks app receive additional loyalty points.
Within the customer loyalty space, Starbucks has consistently been credited with having one of the best rewards programs with a loyal customer following.
Because of the company’s reputation, customers are not afraid to keep money in their Starbucks account, knowing that they can use it anytime.
The numbers speak for themselves:
The "stored value card liability and current portion of deferred revenue" – unspent money that coffee lovers have loaded onto the app – amounted to $1.8 billion in the previous quarter.
This unused cash has been compared to interest-free capital for Starbucks.
Furthermore, some gift card funds are never redeemed by customers, allowing Starbucks to retain the entire amount.
In its latest fiscal year, the company reported approximately $196 million in such "breakage revenue." Although it accounts for less than 1% of Starbucks' annual net revenue, it is essentially free money.
There is another benefit of encouraging users to pay for their purchases using the funds stored in their Starbucks accounts: fewer payment processing fees.
I highly recommend reading my complete source article for more info, stats and figures:
connectingthedotsinfin.tech/…
Starbucks' rewards program is an innovative example of a non-banking entity using loyalty and trust to amass significant customer deposits. Is Starbucks a hidden FinTech giant? Their impressive numbers might suggest so.
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